Thursday, June 11, 2009

A “staggering” 100 Chrysler and General Motors franchises have been or will be terminated in Virginia and Maryland, potentially costing the states thousands of jobs, according industry group executives.

Sixty dealers in Virginia have either lost their Chrysler franchises as of Tuesday or have received “wind down” letters from GM, said Don Hall, president of the Virginia Automobile Dealers Association.

About 45 dealers are in that bind in Maryland, said Peter Kitzmiller, president of the Maryland Automobile Dealers Association. “It’s a staggering number,” he said.

The average dealership employs about 55 people, Mr. Hall said. Even if only half lost their jobs, more than 2,700 people would be out of work in the two states.

“It’s not like these people will land back on their feet at a dealership down the street,” Mr. Hall said. “Not with the state of the industry today.”

Meanwhile, Italian automaker Fiat completed its acquisition of most of Chrysler’s assets Wednesday, creating a new company called Chrysler Group LLC headed by Fiat chief Sergio Marchionne.

Chrysler Group — having shed billions in debt and labor expenses and 789 dealers — said it will soon resume production at its plants.

On Capitol Hill Wednesday, key congressmen and Washington-area auto dealers promoted legislation introduced Monday that would enable rejected dealers to seek recourse under state franchise laws. Franchise relationships are difficult to break except in cases such as bankruptcy when the authority of a federal judge supersedes state law.

Under state law, a franchisor must show compelling reason why it should be allowed to shed a franchisee. The legislation would retroactively require Chrysler to meet that standard in state court for its terminated dealers.

The bill was introduced by Rep. Dan Maffei, New York Democrat, and Rep. Frank Kratovil Jr., Maryland Democrat, and was spurred by auto dealers such as Jack Fitzgerald, owner of 11 area Fitzgerald Auto Malls.

Maryland Democrats Rep. Chris Van Hollen and House Majority Leader Steny H. Hoyer are original co-sponsors. The bill has quickly gained 54 co-sponsors, and Rep. Barney Frank, Massachusetts Democrat, has indicated he will take it up in his Financial Services Committee, congressional spokeswomen said.

“We are not asking for certain dealerships to remain open,” Mr. Hoyer said. “This legislation says that the dealers contracts should be honored, and any closings should be done in accordance with those contracts and state law.”

Dealer terminations in the northwestern suburbs of Washington — including several of Mr. Fitzgerald’s — make Mr. Van Hollen’s district look like ground zero.

“Local car dealerships employ hundreds of thousands of Americans [and] contribute to vibrant local economies all across our country,” said Mr. Van Hollen.

Auto dealers have been among the biggest campaign contributors in the past 10 years, having given $13 million, according to Bloomberg News.

GM has not publicly identified the franchises it wants to terminate, and none of the rejected owners has done so, either.

But Mr. Hall said that “Cadillac was pulled from every small market” in Virginia.

GM mailed 1,100 rejection notices across the country last month. It has since sent letters to all of its other dealers dictating either terms for continuing with the automaker or for winding down the relationship by October 2010.

Surviving dealers are now protesting the terms of the continuation letters, which they are required to respond to by Friday, Mr. Kitzmiller said.

Signing the letter “waives all your rights under state law,” he said.

Dealers who do not assent will have their franchise agreements rolled into the “old” GM — which is being liquidated after GM’s reorganization, Mr. Hall said.

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